IT was a tumultuous day in the markets as the FTSE-100 tumbled below 5000 points, briefly, hitting bear market territory, before recovering in late trading as US markets opened higher.

The UK banking sector had a torrid time as investors remained nervous about the European sovereign debt crisis and the debt deal in the US.

Underlying this was a more fundamental shake-out as City number-crunchers revised their spreadsheets to take account of lacklustre economic growth at home and abroad.

Yet hope of further economic stimulus in the US was enough to persuade the City to pile back into favoured stocks, to halt a two-and-a-half-week market slide.

After a brief early rally, the FTSE-100 index of Britain’s leading shares dropped below 5000 points for the first time since July 2010.

It entered a technical bear market during the session, after falling 20% from highs reached in July.

But after threatening to record an eighth-consecutive session of declines, the benchmark index recovered to finish up 95.97 points, or 1.9%, at 5164.92 points.

The pan-European FTSEurofirst 300 index closed up 1.3% at 948.21 points, having earlier sunk 5% and hit a two-year low.

European markets were buoyed by a strong start in the US where the S&P 500 climbed 2.4% in early trading and the Dow Jones industrial average rose 1.7%.

Nervous investors still piled into asset classes regarded as safe. The Swiss franc clocked up a third successive day of record highs, while gold soared to $1738.4 a troy ounce.

As US markets rose, UK investors rewarded favoured stocks in sectors such as mining, banking, and oil and gas, that had been dumped in previous sessions.

Shares in Barclays had plunged 11.4% to a low of 155.45p, its worst mark for more than two years. But they soared in late trading to finish up 3.9p, or 2.2%, at 179.3p.

HSBC hit a 52-week low of 500.5p but finished the day up 7.2p or 1.3% at 545p. But the UK’s two nationalised banks languished. Royal Bank of Scotland hit a low of 24.44p before closing at 26.24p, a 1.05p or 3.9% fall on the day.

Lloyds Banking Group, owner of Bank of Scotland, dropped to a 52-week low of 30p before closing at 32.115p, a 0.695p, or 2.1%, fall on the day. Taxpayers are left nursing a £30bn loss on the £63bn poured into the two banks.

The future direction of markets now depend on whether Federal Reserve chairman Ben Bernanke pledged a third round of quantitative easing in a speech he was due to give last night.